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Business Function Outsourcing: Business And Management

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Question:

Discuss about the Business Function Outsourcing for Business and Management.

 

Answer:

Introduction:

Outsourcing can be defined as the process of delegating the internal work of the company to the third party. It is required by the companies in today’s world to outsource some of the functions as it provides the companies with the best quality work in an effective manner. By outsourcing the work, companies can concentrate on their important function or the exclusive processes that is more important for the company to be focused upon. The investment of the company in hiring the professional to do that outsourced work is reduced as their work is done by third party Company on fewer prices (Bustinza, Molina and gutierrez?gutierrez, 2010).  The below discussion is based on some of the articles, in which authors have discussed about the advantages ad disadvantages of outsourcing in the firms. This provide a clear idea of what are the situations that the companies are facing in terms of outsourcing their work with the third arty mad what are the actual disadvantages of the outsourcing function.

What is Outsourcing:

Outsourcing is defined differently by different authors but the actual gist of the authors is almost similar. Tayauova suggests that outsourcing is the combination of two words that is “out” and “sourcing” (Tayauova, G., 2012) After the combing the words, the definition of outsourcing can be predicted as taking help of the third party to conduct one of the function of the organization that is not so important. Antonucci, Frank and James in their article have also given the definition of outsourcing in terms of IT business. This is because this article is based on IT outsourcing. The author says that outsourcing is about making contract with the companies which are specialized in the field of IT. This helps the non IT companies to conduct their IT work outside the organization in cheaper and effective way. Outsourcing is the process that focuses on a particular kind of function that is performed by the company which is specialized in that field (Antonucci, Lordi and Tucker III, 1998). Suppose, if any of the company wants to outsource its IT functions then the company has to come in contract with any of the IT outsourcing firm which can di that work for them. This help thee outsourced company to earn revenue and the benefits the other organization as their work can be conducted in effective way. The effectiveness is high because the outsourcing firm has the potential to hire more efficient workers and employees then other firms (Wüllenweber, Beimborn, Weitzel and König, 2008). IT outsourcing is considered as the most crucial outsourcing by the author because, in case of IT outsourcing, the firms also have to invest money in training their employees so that they can at least have the basic knowledge about the software that the firm is using. Thus, it may be possible that outsourcing the IT functions may create mess in the organization as the IT specialist are not present in the organization but are at third party place (Carettas, 2009). It increase the training cost of the company as a whole. Some of the author argues that outsourcing is not about delegating the functions of the companies but it can also be done in case of decision making. This suggests that the decision that has been taken for the company is taken by the third party organization. This can be done in order to restrict the biasness as the third party conduct in-depth research on the issue without any partiality and takes decision accordingly (Ellram, Tate and Billington, 2008). Tayauova has discussed that the process of outsourcing is based on some of the theories. The major theory is the resource based theory which argues that the company used outsourcing method in order to fight with its weakness on one or the other process or function. Another theory is related to core competencies which are considered as the most relevant theory by most of the authors (Tayauova, G., 2012). This is because this theory suggests that outsourcing is done in order to support the organization to focus on its core competencies. As the work that is not the main focus of the company is outsourced, the company has the capital and the resources to invest on its core competencies. As far as the third theory is considered, it is named as transaction theory. It is related to the cost of the activities conducted in the organization that needs to be outsourced (Gewald and Dibbern, 2009). The cost of every activity is determined in case of in house functioning and outsourcing and then the decision has been made whether the activity needs to be outsourced or not.

 

Outsourcing: Advantages and Disadvantages:

Al-Mutairi and Abdulrahman in this article suggested that the entire manufacturing firm should outsource some of its functions so that the fir can concentrate on its manufacturing function because it is the main function of the organization to earn revenue.  As every coin have two sides so as any of the processes such as outsourcing (Al-Mutairi, A.O. and Al-Hammad, A., 2015) Outsourcing has many advantages and the first advantage that is considered to be the main advantage for the any of the company is reduction in the expenses of the company for the process that is outsourced. It has been identified that the firms should associate the cost with every activity and then outsources the activities that may cost less when outsourced. Other factors should also be considered along with this. Now, the question arises that how outsourcing can save money (Haugen, Musser and Lovelace, 2009). This is because the firms need not to hire the employees for that particular function that is to be outsourced. Other than hiring, there is training cost also associated when any new member or employee is hired in the organization. Thus, outsourcing cuts down these costs of the company that is much higher than what the company pays to the third party in some of the functions. As the cost of the organization can be saved by using this method, this cost can be invested to some other activities that are core for the company (Kurdia, Abdul-Tharim, Jaffar, Azli,  Shuib and Ab-Wahid, 2011). This acts as another advantage of outsourcing. Author has argued that manufacturing firm needs to outsource its function such as HR, IT etc. so that the firm can put on all its focus on manufacturing activities. This provides two way benefits to the organization first is that the organization can effectively perform its core processes and other is the outsource function that will also be conducted effectively as the outsourcing company is specialized in that particular field. In addition to all these advantages and benefits, one more advantage of outsourcing is the flexibility. The company or the third party organization is caoable of adaotng the changes in the external envirinmnt of the organization (Lacity, Khan and Willcocks, 2009). Thus, it helps the organization also who have outsourced their work. After assessing the advantages of outsourcing, the author has also mentioned some of the disadvantages of the process. The first disadvantage that has been argued by the author is about the loss of control of the management. It is obvious that if any organization outsource one of its function from another organization than they cannot have direct authority to manage work and the management loss the control over their work only. This is because now the third party management has to handle all the activities. In that case, loss of data can be also a threat. As the company needs to outsource its function, they have to discuss and disclose some of its internal data with the third party company which can be leaked or misused by the firm (Liou and Chuang, 2010). Such practices are considered as very unethical in the business environment but it can affect the companies in negative way. Outsourcing affects the employees of the company in negative way. If the company outsources any of its function, it needs to downsize the organization structure. This downsizing can leads to firing of the employees who were working in the function that has been unstructured from now (Mani, Barua and Whinston, 2010). Thus, this creates a negative impact on the mindset of the employees as these practices develop the threat among the minds of the employees.

The articles that have been studied in this literature review are somewhat similar to each other but the differences have been observed in the industries that have been discussed in different articles (Mohr, Sengupta and Slater, 2011). Tayauova has discussed about the banking industry while Al-Mutairi and Abdulrahman has discussed about the manufacturing industry. Another article that has been taken into account for understanding the topic is about the IT industry. After analyzing these articles, it has be determined that whatever be the industries, outsourcing has advantages and disadvantages for every industry in the market.

Conclusion:

The above literature review provides the knowledge about different aspects of outsourcing in different industries. It has been determined that outsourcing has been given different definition but the basic meaning of the term can be defined as the process in which work or a particular function of a company is delegated to the third party in order to get the work done from out of the company (Wadhwa and Ravindran, 2007). This facilitates the company to get it work done in cheaper and effective way. The companies also needs to face some of the obstacle at the time of outsourcing such as loss of management, fault by the third party, ineffective work, loss of data and security etc. these loses can be harmful for the company at the end. Thus, it is necessary for the company to have a proper approach before outsourcing its function or any of its work. The major point that has been discussed by every author is that the main advantage of outsourcing is that the companies can focus on their core activities (Williamson, 2008). Core activities mean the main activities of the company's business. As the other activities and functions of the company are being outsourced so the company has the opportunity to deal with its core activities. All the resources that have been available with the company can be used to concentrate on the activities that are major for the company’s business. The overall discussion suggests that outsourcing is the crucial decision to be taken by any of the company. Thus, company should make analysis of the situation properly before outsourcing any of its functions.

 

References:

Al-Mutairi, A.O. and Al-Hammad, A., 2015 Advantages and Disadvantages of Maintenance Outsourcing in Manufacturing Companies: With Special References to Jubail Industrial City–KSA. European Journal of Business and Management, 7(20), pp. 8-27

Antonucci, Y.L., Lordi, F.C. and Tucker III, J.J., 1998. The pros and cons of IT outsourcing. Journal of Accountancy, 185(6), p.26.

Bustinza, O.F., Molina, L.M. and gutierrez?gutierrez, L.J., 2010. Outsourcing as seen from the perspective of knowledge management. Journal of Supply Chain Management, 46(3), pp.23-39.

Carettas, K., 2009. Outsourcing, teamwork & business management. New York.

Ellram, L.M., Tate, W.L. and Billington, C., 2008. Offshore outsourcing of professional services: A transaction cost economics perspective. Journal of Operations Management, 26(2), pp.148-163.

Gewald, H. and Dibbern, J., 2009. Risks and benefits of business process outsourcing: A study of transaction services in the German banking industry. Information & Management, 46(4), pp.249-257.

Haugen, D., Musser, S. and Lovelace, K., 2009. Outsourcing. Detroit: Greenhaven Press.

Kurdia, M.K., Abdul-Tharim, A.H., Jaffar, N., Azli, M.S., Shuib, M.N. and Ab-Wahid, A.M., 2011. Outsourcing in facilities management-A Literature Review. Procedia Engineering, 20, pp.445-457.

Lacity, M.C., Khan, S.A. and Willcocks, L.P., 2009. A review of the IT outsourcing literature: Insights for practice. The Journal of Strategic Information Systems, 18(3), pp.130-146.

Liou, J.J. and Chuang, Y.T., 2010. Developing a hybrid multi-criteria model for selection of outsourcing providers. Expert Systems with Applications, 37(5), pp.3755-3761.

Mani, D., Barua, A. and Whinston, A., 2010. An empirical analysis of the impact of information capabilities design on business process outsourcing performance. Mis Quarterly, pp.39-62.

Mohr, J.J., Sengupta, S. and Slater, S.F., 2011. Mapping the outsourcing landscape. Journal of Business Strategy, 32(1), pp.42-50.

Tayauova, G., 2012. Advantages and disadvantages of outsourcing: analysis of outsourcing practices of Kazakhstan banks. Procedia-Social and Behavioral Sciences, 41, pp.188-195.

Wadhwa, V. and Ravindran, A.R., 2007. Vendor selection in outsourcing. Computers & operations research, 34(12), pp.3725-3737.

Williamson, O.E., 2008. Outsourcing: Transaction cost economics and supply chain management. Journal of supply chain management, 44(2), pp.5-16.

Wüllenweber, K., Beimborn, D., Weitzel, T. and König, W., 2008. The impact of process standardization on business process outsourcing success. Information Systems Frontiers, 10(2), pp.211-224.

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